Why the President’s Plan for the Minimum Wage Is Pointless

On Labor Day, President Obama delivered an inspirational message to America’s workers via YouTube. I’m going to skip over the fact that Obama makes it sound like the workers and the nation are two different groups. I want to talk about the action plan that he announced in the second half of the video.

After telling Americans that they work hard, Obama announces that he wants to raise the minimum wage because “in the wealthiest nation on earth nobody who works full time should have to raise their children in poverty.”

Now, I don’t think that anyone should settle for a career at minimum wage, but just for the sake of argument, let’s say that’s all someone can find. Obama’s right, if someone works forty hours a week, that person will make a little over $15,000 a year. This is about $4,500 below the poverty line for a family of three. However, he fails to mention some important facts.

1. If a mom has two children and make $15,000 a year, the earned income tax credit will boost her well above the poverty line. See? We as a nation have already addressed that problem. But you might say, “Why should the government be paying this mom instead of making her employer pay more!” Well, that’s a good question. The answer is that maybe her labor isn’t worth more than $7.25 to the employer. (It might not be worth even that much.)

2. In order to bring this hypothetical mom above the poverty line based on her minimum wage, businesses would have to start paying almost 30% more per hour. That’s a pretty steep increase. Will business be able to charge 30% more overnight? No. Will they be able to sell 30% more overnight? No. What will they do? Cut back on hours. They’ll get more work out of each employee. I actually experienced this ten years ago when I worked at Starbucks. Starbucks decided to have a social conscience and they started new employees above minimum wage. They also adjusted all the old employees up to the new pay scale. It was great for my paycheck, but it was tough for other people putting in applications. Starbucks cut back on hours to compensate. On shifts that used to have four baristas they told us to give the same stellar service with three. On late shifts that used to have three closers, we cut back to two. If you pay our hypothetical mom more per hour, it might be harder for other hypothetical moms to get their foot in the door.

3. But all that’s just smoke and mirrors. Here’s the real issue. Why is someone trying to raise children on one minimum wage salary? The real problem with poverty is that mothers and fathers don’t live together and raise their kids together. If you have two parents raising three kids on two minimum wage salaries, they’ll be above the poverty line. (And like I said, no one should be staying at minimum wage their entire career.)

That’s the problem Mr. President. Too many single parents. Fix it.

Mr. Obama knows what the problem is, and he knows that there’s not a single thing that government can do to solve it. He’s merely attempting to score some political points with all this minimum-wage talk. He knows he probably won’t get it raised, and then he can claim the Republicans hate the proletariat. He also knows that even if he raises it, he won’t be able to raise it by 30%. That’s okay because he knows that most people won’t realize his action was hollow because they won’t do that math.

All the wonks know that there is only one proven way to keep people above the poverty line: mothers and fathers living together as they raise their children. Saying that, however, doesn’t score Mr. Obama any political points with his voting base.

7 thoughts on “Why the President’s Plan for the Minimum Wage Is Pointless”

Dr. Garbarino this is fantastic. I will say on an economic side of the issue that I personally believe minimum wage laws are the reason for a huge percentage of unemployment in our country and the prime factor in the decrease in the value of the American dollar. If there were no minimum wage laws in effect, we would COMPETE for jobs based on work performance instead of paper qualification. Hard work would be rewarded as it should be. Instead, now we have everyone starting with a minimum to where $3.25 an hour work based on performance is rewarded with $7.25. In turn, this makes people working at a value of $11.25 per hour based on performance compromise to $7.25 per hour. I completely agree that the family is the #1 factor in decreasing poverty. I would argue a #2 to being a lack of dedication and work ethic. And a lack of dedication and work ethic is the principle reason for a lack of family units in this country. And that derives from a lack of faith in Jesus Christ.

Good to hear from you, Justin. I would like to add that sometimes it’s not about the quality of the employee. Often it’s the quality of the job. Some jobs just aren’t worth paying someone $11.25, no matter how much work ethic they have.

If the poverty line is $19,500, and a woman makes $15,000 a year the eitc will add only about $5,000 to her take home pay. Meaning she is taking home about $20,000 a year, ignoring SS taxes and fica. So, $500 is well above?

I’m not saying raising the minimum wage will help. I actually agree with you, it hurts the unemployed and encourages business to substitute in machines. But the issue remains, there are a lot of single parents just above the poverty line.

Thanks for pointing that out. I had thought the EITC would be a bit higher than that. Even so, the credit does boost them above the line. I think expanding child credits is a preferable way of dealing with this issue. (And it’s not just because I have children.)

I enjoyed and agree with your post overall, and I love reading your blog..

I do have some nuanced disagreement on this topic. I think you’re conflating two ideas. You’re right that many poor single moms, or even poor couples, should not be having children if they can’t afford it. And if someone does have children (or several) while not having the income to support them, then it is not morally incumbent on employers to give them raises.

But the problem isn’t, centrally, “single-parenthood.” There is a primary moral problem, which I’ll come to. But to the problem you raised, single-parenthood isn’t the issue itself. The real problem is taking on financial obligations that one can’t afford.

So the two issues I think you are conflating are the issue of single parenthood and the issue of individual responsibility. Single parenthood is a corollary and often-related issue, but not the fundamental issue. In other words, irresponsibility can often lead to single parenthood, but it is not a necessary condition of single parenthood. Sometimes responsible people may find themselves in a situation of being a single parent. I think it’s irresponsibility (from an individual’s standpoint) that is the issue that needs to be targeted, not single parenthood per se. Can and should government do anything about personal responsibility? I think, no and no.

Now, to what is in my view the primary moral problem that supporters of a minimum wage (and socialists and statists in general) make. It is the moral evil of enslavement — broadly a denial of an individual to own his own life, and in this case denying an individual the freedom of association with others. A person should be free to say, “I will hire you to do this job for X amount of money.” The other person should be free to accept, or not. It is immoral for either of them, or for a third party, to use force to dictate how those two individuals can or can’t associate with one another.

A secondary problem supporters of a minimum wage make is an economic one: They don’t understand how marketplace value is set. What is the value of my work? The answer is: It is whatever I can get someone to pay me for it. Market value simply cannot be set by a central economic planner.

This is what Ludwig Von Mises called the problem of economic calculation, and why socialism inevitably will always fail. He called it socialism’s “leap in the dark.” How do you know what price of milk should be? If a socialist system is trying to set prices, they have to take that leap in the dark. They have no clue if a gallon of milk should be $1, $3, $10, $20, etc. Because in capitalism supply and demand sends signals, producers know what price they can set on their good or service.

When governments set a minimum wage, they create artificial values by fiat, which in turn distorts the economy. So what is the value of a person’s work? The only way to determine that is through a free market.